Don't be scared of pensions

 By Malcolm McLean
Chief executive of the Pensions Advisory Service (Opas)
BBC News, August 5, 2003


Confidence in pensions is at an all time low. Malcolm McLean, a leading pensions expert who runs a pension helpline, says it is time to change our attitude towards saving for retirement.

There is no doubt that the image and reputation of the pensions system in this country have taken a bit of a bashing over the last year or so.

Dealing, as we do, directly with the public we in the Pensions Advisory Service (OPAS) have first hand knowledge of many of the problems that are concerning consumers and how they are reacting to them.

It is our perception that confidence both in the system and in the people that run it is at an all time low and a number of things need to be done to restore confidence levels before it is too late.

The problem has its origins in several factors but can be attributed in part at least to the many very high profile "disaster" cases reported in the media, involving final salary schemes, where workers and former workers have lost their pensions following the insolvency of the company - sometimes after contributing into a final salary scheme for 20 or 30 years.

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This is both shocking and distressing for the people concerned but the sort of publicity these situations generate has also brought home to a wider audience how little protection has existed in what had traditionally been viewed as the gold standard of pension schemes.

This and the other factors at play (such as three years of tumbling stock market returns) have undoubtedly put many people off pensions generally and have made them think twice about starting or even continuing a pension plan of any type.

Confidence plummets

The "putting away money under the bed" alternative is frequently referred to as a better prospect! This is an appalling state of affairs which surely cannot be allowed to continue.

The government has recently come forward with proposals to improve member protection in the event of company insolvency and has imposed a requirement on solvent employers who wind-up their schemes to meet the pension promise in full.

These are welcome changes although of course for some (the people who have already lost their pensions) they are too little too late.

There are also plans (long overdue) to simplify the pensions legislative framework and the detailed rules, in order to improve consumer education and provide better information and advice.

These are also welcome but we will have to accept this will take a little time to work through.

Whether by these measures it is possible to reverse some of the recent trends, provide a more customer-friendly system and fully restore consumer confidence remains to be seen.

But in the longer term the situation remains that as a country we are unlikely to be saving anything like enough for our old age.

Necessary compulsion

With an ageing population this will inevitably mean that the pressures on the public purse will increase and the state pension will not keep pace with demand.

Without alternative means of support, future generations of pensioners will have an impoverished old age and indeed may be forced (if they are able) to work on beyond what is the present state pension age of 65.

The reality, therefore, is that today's workers will either have to be persuaded or compelled to provide more for themselves in later life.

I have a feeling that, much as I dislike the idea in principle, compulsion will be found to be the only practical solution.

For a voluntary system to work, everybody should be encouraged to develop their own personal retirement plan - and the sooner they start the better.

Have a plan

The ideal plan is to do a bit of everything - a pensions plan, a savings plan and property, although not everyone can afford that.

A workplace pension, a pension which is supported by an employer, is still generally the best way of saving for old age.

This is because an individual's own contributions will be topped up with extra payments from the employer. If you have an opportunity to join such a scheme, this is not something you should set aside lightly. It might be the best thing you could do.

But people should look at pensions as they would any other type of investment.

While there have a number of disaster stories, with workers losing great chunks of their pensions, the vast majority of people probably have nothing to worry about.

And the government's new proposed compensation scheme should provide greater security than has existed to date.

But people must be proactive. They are investing for the long-term and it is important to take an interest.

The message - don't join a pension scheme and forget about it. Ask questions about how the scheme is doing and how healthy it is on a regular basis. Find out as much as you can: don't just sign up and leave it.

Remember it is your future well-being that is at stake. There might be thirty or forty years of living to do after work has finished. A bit of planning and saving now will be appreciated later on.

Opas runs a helpline to help members of the public with their pension queries. The helpline can be reached, by dialling 0845 6012923. Calls are charged at local rate. The views expressed are solely those of Malcolm McLean's and not the BBC's. Any guidance is for general information only and does not constitute financial or legal advice.

Copyright 2002 Global Action on Aging
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